5 Reasons Why Real Estate is a Great Hedge Against Inflation
When most people think about investing, they think of stocks, bonds, and mutual funds. But what about real estate? Contrary to popular belief, real estate can be a great investment option – especially in times of inflation. Here are five reasons why real estate is a great hedge against inflation:
1. Real Estate Is A Physical Asset
Unlike stocks and bonds, which are paper assets, real estate is a physical asset. This means that it is not susceptible to the same type of market fluctuations. In times of inflation, paper assets can lose their value quickly, but physical assets like real estate tend to hold their value or even increase in value.
During periods of high inflation, real estate values usually go up at a rate that is higher than the rate of inflation. This is because as the cost of living goes up, so does the demand for housing. And as demand goes up, so do prices.
2. Long-term Investment
Inflation is a long-term phenomenon. It usually happens gradually over time, which gives investors time to adjust their portfolios accordingly.
Real estate is also a long-term investment. This means that it can take years for the value of your property to go up. But in the end, it will be worth more than what you paid for it – even after accounting for the effects of inflation.
3. Real Estate Is A Tangible Asset
While stocks and bonds are intangible assets, real estate is a tangible asset. This means that you can see, touch, and feel your investment. And in times of economic uncertainty, having a tangible asset can be a great source of comfort.
When the stock market crashes, you can’t go to your broker and ask to see your shares. But with real estate, you can always drive by your property and see it (and even live in it) if you want to.
4. Real Estate Is An Income Producing Asset
Unlike stocks and bonds, which only generate capital gains, real estate generates both capital gains and rental income. And in times of inflation, rents usually go up at a rate that is higher than the rate of inflation. This means that your real estate investment will not only hold its value, but it will also generate additional income to help offset the effects of inflation.
5. Asset That You Can Control
When you invest in stocks and bonds, you are at the mercy of the market, but with real estate, you have more control over your investment. You can control the price you pay for a property, as well as the rent you charge for it. And if inflation does start to eat away at your profits, you can always raise rents to offset the loss in value.
Conclusion
Real estate has a long history of outperforming other asset classes in times of high inflation. In fact, real estate is often referred to as the “ultimate inflation hedge”. So, if you’re looking for an investment that will protect your purchasing power and generate income, real estate is a great option to consider. If you aren’t wanting to manage properties yourself and still wanting the income or compounding growth from your RRSP reach out to us!